Markets

Amazon's newest shopping disruption is a doozy

Amazon (AMZN) today unveiled a prototype for a brick-and-mortar food store called Amazon Go. That sounds like a big deal, but it actually promises something far beyond what current grocers can offer: This store will let consumers make purchases while they’re tracked with cameras and artificial intelligence sensors that know what goods they’ve picked up, and then they pay via their mobile devices -- automatically -- as they leave. No need for waiting on a checkout line (and no need for the jobs of countless cashiers).

According to the e-commerce giant, Amazon Go is currently being tested at a location in its Seattle hometown that’s open now only to company employees. Amazon, which will open the 1,800-square foot store to the public next year, is said to be planning a chain of convenience stores that offer perishable items as well as meals.

It’s a further challenge to rivals such as Walmart (WMT) and Target (TGT), which depend on their grocery businesses for more than half of their annual sales. Traditional players such as Kroger (KR) are also in Amazon’s sights.

Amazon’s version of a grocery store uses what the company calls “Just Walk Out” technology. Developed over the past four years, it’s similar to the gear used in self-driving cars, according to Amazon. It automatically detects which products are taken from -- or returned to -- the store’s shelves and keeps track of those goods in a virtual cart. When you’re done shopping, you leave the store, and your Amazon account gets charged automatically (and you’ll get an emailed receipt).

“The Go technology Amazon developed streamlines and shortens the whole consumer experience of grocery shopping and, just like Uber, removes the whole payment hassle,” said Amanda Nicholson, a professor of retail practice at Syracuse University’s Whitman School of Management, in an email.

She added, “on the more practical side of things, problems might include customers moving stickers from item to item, how to handle ‘returns’ and, of course, if this really becomes the modern way to shop, we’re looking at significant job losses for cashiers in the U.S.”

Amazon didn’t provide additional details on its plans for Amazon Go, such as if it will license the technology to other retailers, and it declined to make any executives available for interviews.

Clearly, the ramifications of Amazon’s “Just Walk Out Technology” could be huge for grocery stores, which are worried about turning off customers with long checkout lines, and other physical retailers struggling to draw crowds as online shopping surges in popularity, according to Howard Davidowitz, who runs New York-based Davidowitz & Associates, a firm that provides consulting and investment banking services to retailers.

“This takes a lot of technology,” said Davidowitz, who described it as a “game changer.” If it works, he said, “it can change the way retailing is done.”

“Just Walk Out” technology comes as shoppers are growing increasingly comfortable making purchases over their smartphones and tablets. According to ComScore, mobile devices will account for about 20 percent of total holiday e-commerce sales, in line with the third quarter when it reached an all-time high.

A year ago, spending from mobile devices accounted for about 13 percent of e-commerce holiday spending. Although mobile payment offerings such as Apple Pay (AAPL), PayPal (PYPL) and Android Pay (GOOG) have gained in popularity, consumers have been slow to adopt them.

“Self-checkout is already available to shoppers who use hand-held scanners, and Amazon Go could offer a shopping experience that eliminates even that simple step,” said Tom Caporaso, CEO of Clarus Commerce, an e-commerce services provider that owns FreeShipping.com and ShopSmarter, a price comparison site. “It’s still in beta testing at the moment, but if Amazon can deliver on its promise, it’s likely that down the road, millions of in-store shoppers will be able to bypass checkout lines and essentially ‘grab and go.’”